Investor confidence in financial reporting is highly dependent on auditors’ commitment to maintaining independence in both fact and appearance. Auditor independence lies at the very foundation of the profession and is necessary to reduce threats to auditors’ objectivity and lend credibility to the fair presentation of the financial statements

On the downside –

89 of the 115 audits inspected (77%) had deficiencies

70% of the inspections revealed at least one deficiency related to revenue. As revenue standards continue to change, this is likely to be an ongoing concern.

It is also of concern that 42% of inspections revealed a risk of material mistatement due to fraud,

2015

2014

Audit and Other Deficiencies

Number of Audits with Deficiencies

Number of Applicable Audits

Percentage of Audits with Deficiencies

Percentage of Audits with Deficiencies

Audit Deficiencies Related to the Financial Statements

Revenue

80

115

70%

72%

Financial Statement Presentation and Disclosures

43

115

37%

44%

Related Party Transactions

27

85

32%

21%

Risks of Material Misstatement Due to Fraud

24

57

42%

42%

Fair Value Measurements

19

43

44%

44%

Receivables and Payables

14

67

21%

19%

Audit Deficiencies Related to the Supporting Schedules

Net Capital Rule

34

115

30%

39%

Customer Protection Rule

16

30

53%

43%

Other Deficiencies Related to the Audit

Reporting on the Financial Statements and Supporting Schedules

9

115

8%

8%

Audit Documentation

30

115

26%

N/A

Engagement Quality Review

66

115

57%

N/A

Deficiencies in Audit Committee Communications

Independence Communications to the Audit Committee (or equivalent)

12

115

10%

N/A

We encourage you to read the entire report, especially of you are in the broker/dealer industry. But even if you are not, this report could give you some insight into the types of issues that the PCAOB is looking into.